IN THE SUPERIOR COURT OF THE VIRGIN ISLANDS

DIVISION OF ST. CROIX

GOVERNMENT OF THE VIRGIN Plaintiff

ISLANDS CASE NO. SX-17-CV-0000261

ACTION FOR: DECLARATORY
JUDGMENT
VS

JOHN K. DEMA, P.C.

et em See “ogee? See “ee See See

Defendant

NOTICE OF ENTRY OF
MEMORANDUM OPINION
AND ORDER

TO: CAROL THOMAS JACOBS, ESQ.
ANDREW L. CAPDEVILLE, ESQ.
KURT F. GWYNNE, ESQ.
JUDGES & MAGISTRATES
LAW CLERKS & LAW LIBRARY
IT DIVISION & RECORD BOOK

Please take notice that on January 27, 2020 a(n) MEMORANDUM
OPINION AND ORDER dated January 24, 2020 was entered by the Clerk in the
above-entitled matter.

Dated: January 27, 2020

TISHA LAURENCIN-ORTIZ
COURT CLERK I!
FOR OFFICIAL PUBLICATON

SUPERIOR COURT OF THE VIRGIN ISLANDS
DIVISION OF ST. CROIX

GOVERNMENT OF THE VIRGIN ISLANDS, ) CASE NO. SX-17-CV-261
)
Plaintiff, )
)
v. )
)
JOHN K. DEMA, P.C., )
)
Defendant. )
)

Cite as: 

Appearances:

CAROL THOMAS JACOBS, ESQ.
Assistant Attorney General

Virgin Islands Department of Justice
St. Thomas, VI 00804

For Plaintiff

ANDREW L. CAPDEVILLE, ESQ.

Law Offices of Andrew L. Capdeville, P.A.
St. Thomas, VI 00804

For Defendant

KURT F. GWYNNE, ESQ. (pro hac vice)
Reed Smith LLP
Wilmington, DE 19801
For Defendant

M ND INI
MOLLOY, Judge
7i THIS MATTER is before the Court further to supplemental briefing the parties submitted in
response to an order questioning whether the Superior Court of the Virgin Islands has jurisdiction
over this matter. For the reasons stated below, the Court concludes that District Court of the Virgin
Islands, Bankruptcy Division (“Bankruptcy Court”) retains jurisdiction over the arbitration between

the Defendant, John K. Dema, P.C. (“JKDPC”), and the Plaintiff, the Government of the Virgin Islands

(“Government”). Accordingly, this matter must be dismissed for lack of jurisdiction.
Gov't of the V.L v. John K. Dema, P.C. 2020 Vi Super 19
Case No. SX-17-CV-261

MEMORANDUM OPINION

Page 2 of 9

I. FACTUA D PROCED L BACKG Di

{2 The Government of the Virgin Islands, Department of Property and Procurement, on behalf
of the Department of Justice, contracted with JKDPC in 2004 to provide legal services on a
contingency fee basis related to the contamination of the Territory's natural resources along the
industrial area of St. Croix’s south shore. The contract authorized payment of JKDPC’s contingency
fee out of any “recovery or settlement monies” the Government might receive. (Prof Servs Contract
3, attached as Ex. C. to Compl., filed June 14, 2017.) Several lawsuits, referred to hereinafter as the
“South Shore Litigation,” were filed in the Superior Court of the Virgin Islands and the District Court
of the Virgin Islands. The South Shore Litigation stretched on for several years. Cf Comm'r of the
Dep't of Planning & Nat. Res. v. Century Aluminum Co., Civil No. 05-62, 

 (D.V.L.
Jan. 5, 2010); see also U.S.V.I. Dep't of Planning & Nat. Res. v. St. Croix Renaissance Group, L.L.L.P.,

 (3d Cir. 2013).

{3 One of the defendants named in the Century Aluminum lawsuit was HOVENSA, LLC
(“HOVENSA”). The Government settled with HOVENSA in 2014, two-years after HOVENSA had
ceased all business operations in the Territory. Cf Barnes v. Century Aluminum Co., No. 05-62, 

, at *15 (D.V.I. May 9, 2013) (“The announcement of the closure of the
HOVENSA refinery occurred on January 18, 2012.”). Under the terms of the settlement agreement,
HOVENSA had to make two payments to the Government, totaling $43.5 million. The Government
also obtained a security interest on HOVENSA’s equipment, fixtures, and real property under the
agreement,

74 HOVENSA made the first payment, $3.5 million, but missed the second. One reason why
HOVENSA missed the second payment is because the Legislature of the Virgin Islands rejected a

proposed agreement between HOVENSA and a potential buyer. (See Ltd. Obj. of Law Offices of John

’ Because the events that led up to this case are relevant to determining jurisdiction, and because courts can look outside
the pleadings when deciding questions related to jurisdiction, cf Gov't of the V.L. v. AFT, Local 1825, 61 V.1. 34, 38 (Super.
Ct. 2014) (“[T]he Court ‘may consider affidavits and other relevant evidence outside the pleadings in determining the
existence of jurisdiction[.]” {footnoted citation omitted)), the Court relies in part on the record of the Bankruptcy Court.
Courts “may take judicial notice of the contents of another [c]ourt’s docket.’” Cianci v. Chaput, 

, 690 n.2 (2016)
(emphasis added) (citation omitted). But more importantly, the factual background is not in dispute. Considering that
background helps to frame the issue and inform the discussion. Cf Cornwall v. V.L Indus. Maint Corp., 

, 25 (“[M]atters outside the pleadings” matters only for “a motion under Rule 12(b)(6) or 12(c)."” (quoting V.L R.
Civ. P. 12(d)},
Gov't of the V.1. v. John K. Dema, P.C. 

Case No. SX-17-CV-261

MEMORANDUM OPINION

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K. Dema, P.C. to Debtor’s Mot. for Entry of Orders 7, ECF No. 300, in re: HOVENSA, L.L.C., Case No.
1:15-bk-10003 (D.V.I. Nov. 5, 2015) (“On December 19, 2014, the Virgin Islands’ Senate, by a vote
of 13-2, rejected a proposed operating agreement with the potential purchaser, which effectively
terminated the proposed sale transaction.”).) Once HOVENSA missed the second payment, the
Government filed a foreclosure action in the Superior Court in January 2015. (See generally Gov't of
the U.S.V.L v. HOVENSA, LLC, Case No. SX-15-CV-15.) But that action was stayed after HOVENSA filed
a chapter 11 petition for bankruptcy on September 15, 2015, and then dismissed on January 15,
2016, by stipulation of the parties.2

15 In the interim, specifically on September 23, 2015, Attorney General Claude E. Walker
terminated the professional services contract between the Government and JKDPC and “took the

position that the longstanding Contract was void ab initio....” (Arb. Award 3, Ex. B, attached to Def’s

Mot. to Dismiss, filed July 12, 2012.) The Attorney General also refused to arbitrate, as required by
the contract, JKDPC’s fee dispute. As a result, JKDPC filed a proof of claim with the Bankruptcy Court
based on the 2004 contract, which had JKDPC claimed approximately $8.9 million? in attorney's fees
and costs incurred during the South Shore Litigation. On November 5, 2015, JKDPC filed an objection
in the HOVENSA bankruptcy proceeding to the proposed sale and requested that the $8.9 million be
escrowed. The same day, JKDPC filed an expedited motion, requesting that the Bankruptcy Court
refer the dispute between JKDPC and the Government to arbitration pursuant to the terms of their
2004 agreement.

16 The Bankruptcy Court heard argument on December 17, 2015, on JKDPC’s motion, and
initially expressed doubt whether it had jurisdiction. (See, e.g., Hr’g Tr. 42:24-43:1 (Dec. 17, 2015),
ECF No. 477, In re: HOVENSA, L.L.C., Case No. 1:15-bk-10003 (“THE COURT: Well, first address the
legal issue of why I even have jurisdiction to compel two non-debtors to go to arbitration.”).)
However, after hearing from JKDPC, the Government, and HOVENSA, the Bankruptcy Court
concluded that “there is enough of an effect on the estate that the issue does need to be resolved,”

, and continued the matter to another date to “have the parties talk about an

? The docket of the Superior Court action does not reflect whether the Bankruptcy Court lifted the stay to effectuate the
dismissal with prejudice of the 2015 foreclosure action.

3 All dollar amounts are rounded to the nearest hundred thousand.
Gov't of the V.L v. John K. Dema, P.C. 

Case No. SX-17-CV-261

MEMORANDUM OPINION

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acceptable order referring [the dispute] to arbitration.” /d, at 51:16-17. By order dated January 16,
2016, entered January 20, 2016, the Bankruptcy Court granted JKDPC’s motion to compel
arbitration and ordered the Government and JKDPC to “arbitrate the Fee Dispute (as well as any
other disputes relating to the[ir] Contract) ...." (Order 1, ECF No. 580, In re: HOVENSA, L.L.C., Case
No. 1:15-bk-10003 (D.V.I. Bankr. Jan. 20, 2016) (hereinafter “Jan. 16, 2016 Order”).) The Bankruptcy
Court also “retain[ed] jurisdiction with respect to all matters arising from or related to...
implementation of th{e] Order [compelling arbitration].” /d. at 2. The Bankruptcy Court, in February
2016, appointed a retired judge, James T. Giles, as arbitrator.

17 After adelay, which JKDPC objected to on April 19, 2016, by filing a second motion to compel,
the Government and JKDPC proceeded to arbitration, which concluded on November 7, 2016 in a
merits award (“Initial Award”) of $8.9 million in favor of JKDPC. So far as the record shows, neither
party moved the Bankruptcy Court te confirm or vacate that award. The Initial Award also
acknowledged that “[b]oth parties seek an award of arbitration attorneys fees and costs.” (Initial
Award p. 62.) And the arbitrator concluded that the “awarding of fees and costs is deemed to be
within the scope of the parties’ agreement to arbitrate.” /d.; see also id. at 7 (“Attorney fee and cost
awards will be determined and made into an award after a future hearing . . . .”). JKDPC later
submitted a claim for $1.6 million in arbitration attorney's fees and expenses, which the arbitrator
reduced to $1.3 million in a March 17, 2017 supplemental award. The Government “did not file a
claim for attorney fees and costs [sic] as a prevailing party.”45 (Supp. Award 1, attached as Ex. A to
Compl.)

78 On June 14, 2017, the Government filed a complaint with the Superior Court of the Virgin
Islands to vacate the Supplemental Award, alleging that the arbitrator exceeded his authority.
JKDPC filed a pre-answer motion to dismiss, attaching seven extra-pleading exhibits in support, and
further moved to confirm the Supplemental Award. The Government responded in opposition on
August 1, 2017. The Court heard oral argument on JKDPC’s motion on March 6, 2018, and took it

under advisement.

* The arbitrator concluded that both JKDPC and the Government would be “prevailing parties” under Virgin Islands law.

5 The Interim Award was inconsistent in that the arbitrator initially had determined that “[t]he parties’ claims for
arbitration fees and expenses are not awarded. Such continue to be their shared responsibility.” (Initial Award p. 63.)
Neither the parties nor the arbitrator addressed the inconsistency, however.
Gov't of the V.L v. John K. Dema, PC. 

Case No. $X-17-CV-261

MEMORANDUM OPINION

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19 Because the record the parties submitted in this Court, particularly the Interim Award, had
referenced the Bankruptcy Court’s order compelling arbitration, the Court accessed the docket of
the HOVENSA bankruptcy proceeding to review the filings related to that order. And because the
Bankruptcy Court's order compelling arbitration had stated that the Bankruptcy Court retained
jurisdiction with respect to “all matters ... related to” arbitration, (Jan. 16, 2016 Order at 2
(emphasis added)), this Court issued an order on February 1, 2019, questioning whether the
Superior Court of the Virgin Islands has jurisdiction. Both parties, in supplemental briefs filed in
response, agreed that the Superior Court has jurisdiction because the $8.9 million escrowed in the
bankruptcy proceeding would not be used to satisfy the supplemental award.
II. RISDICT AND DI ON

710 ©All courts have an independent obligation to examine their own jurisdiction. See Brunn v.
Dowdye, 59 V.1. 899, 904 (2013) (“Prior to considering the merits of a matter before it, a court is
obligated to examine whether it has subject matter jurisdiction over the dispute.” (emphasis
added)). And “‘a court may consider the issue of subject matter jurisdiction sua sponte.” Ali v. Hay,
70 VI. 737, 740 (2019) (citation omitted). Although the Government and JKDPC agree that the
Superior Court does have jurisdiction, the consensus is irrelevant because the Supreme Court “has
repeatedly instructed, ‘parties may not explicitly or implicitly stipulate to the law.’” In re: Pet. For
Expungement of Crim. Rec. of Callwood, 66 V.1. 299, 303 (2017) (brackets omitted) (quoting Bryan v.
Fawkes, 61 V.1. 201, 224 (2014)). And this Court concludes that it lacks jurisdiction here.

11 ‘First, the Supplemental Award awarded attorney’s fees and costs. But it was not issued by a
different arbitrator in another proceeding. Instead, it was an extension of the initial arbitration. In
fact, the Interim Award anticipated the Supplemental Award. Generaily-speaking, although requests
“for costs or attorney's fees are independent proceedings... and not a request for a modification of
the original decree,” Yearwood Enters, Inc. v. Antilles Gas Corp., 69 V.1. 863, 869 (2018) (citations
omitted), the requests are “supplemental to the original proceeding ....” /d. In other words, the
request is made within the original proceeding, typically by motion. Cf V.I. R. Civ. P. 54(d)(1)(A);
accord Fed. R. Civ. P. 54(d}(1)}. Except in rare instances not applicable here, attorney's fees and costs
are not recovered in an independent proceeding. Cf 5 V.I.C. § 431(b) (“The measure and mode of

compensation of attorneys . . . shall be allowed to the prevailing party in the judgment... .”
Gov't of the V.L v. John K. Dema, P.C. 

Case No. 5X-17-CV-261

MEMORANDUM OPINION

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(emphasis added)). See also, e.g., Morley v. Farnese, 

 (Pa. Commw. Ct. 2018)
(“Section 977 only permits an award of costs in the proceedings on the petition to set aside, not a
separate action for costs in a court unfamiliar with the conduct of the parties.”). In fact, fees and
costs must be “allowed ...in the judgment,” 5 V.I.C. § 431(b), and entering judgments may have to
be deferred, at least in Virgin Islands courts, until the request for attorney’s fees and costs are
resolved. Cf Mahabir v. Heirs of George, 63 V.1. 651, 665 n.7 (2015).

712 Of course, the underlying proceeding here was an arbitration, not a civil action. But the
arbitration was compelled by the Bankruptcy Court. Although JKDPC represented to the Bankruptcy
Court that it could have turned to the Virgin Islands courts in the first instance, JKDPC concluded as
well that it would have had to “seek relief from [the automatic] stay.” (Hr’g Tr. 48:8 (Dec. 17, 2015),
ECF No. 477, In re: HOVENSA, L.L.C., Case No. 1:15-bk-10003; see also id. at 48:13-15 (So, even if
there was another potential court we could go to if we sought relief from stay, it doesn't change the
fact that Your Honor has jurisdiction ....").) Rather than ask the Bankruptcy Court to escrow the
funds in dispute between the parties and lift the stay so JKDPC and the Government resolve their
fee dispute in court, both parties agreed to go to arbitration. And even though the Government
questioned the preclusive effect that arbitration might have on subsequent proceedings, the
Bankruptcy Court referred that issue as well to the arbitrator. (See Jan. 16, 2016 at 2 (“The
preclusive effect, if any, is reserved in the first instance for the arbitrator.”).) And the arbitrator
concluded that the Government had “reserved [the] right to bring civil or criminal actions against
the Dema Firm’s principal, John K. Dema, Esquire.” (Initial Award, p.3.)

713 But this action is not against John K. Dema, Esquire. This action is not an action to “enforce .
.. [the] arbitration award[s] as a final judgment in a court of law.” (Prof Servs Contract J 23,
attached as Ex. C. to Compl., filed June 14, 2017.) Instead, the Government commenced this action
to vacate the Supplemental Award, an award issued in furtherance of the underlying arbitration
compelled by the Bankruptcy Court exercising its “related to” jurisdiction. See 

(b)
(Bankruptcy courts “have original but not exclusive jurisdiction of all civil proceedings arising
under title 11, or arising in or related to cases under title 11.”), And the Bankruptcy Court retains

jurisdiction to confirm, vacate, modify, or amend that award.
Gov't of the VL. v. john K. Dema, P.C. 

Case No. SX-17-CV-261

MEMORANDUM OPINION

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14 Just as an award of attorney’s fees and costs in a civil case is a proceeding “supplemental” to
jurisdiction over the original case, the supplemental award the arbitrator issued was issued with
the original arbitration. In fact, the arbitrator, in the Initial Award, concluded that the question
whether attorney's fees and costs incurred in the arbitration could even be awarded was itself
“deemed to be within the scope of the parties’ agreement to arbitrate. (Initial Award, p. 62.) Thus,
“all matters ... related to” arbitration were determined by the arbitrator as the January 16, 2016
Order had authorized. Just as “the Superior Court retains jurisdiction to decide collateral issues such
as attorney's fees even after voluntary dismissal of an action,” Yearwood Enters., 69 V.I at 871, the
Bankruptcy Court likewise retains jurisdiction, in this instance, to decide whether to confirm,
vacate, modify, or correct the supplemental award of attorney's fees and costs.

{15 The parties disagree. But the concern is not, as they phrase it, the source of the funds to pay
the Supplemental Award. Rather, the concern is the source of authority that referred them to
arbitration. Bankruptcy courts “may hear both core and noncore matters... .” In re: Allegheny
Health, Educ, & Research Found., 

 (3d Cir. 2004) (citation omitted). In core
proceedings they may issue final orders, whereas in non-core proceedings they can make findings
and conclusions for district court review. See 

 Core proceedings include determining the validity
of liens, See 

(b)(2)(K). Non-core or related proceedings, see Stern v. Marshall, 

 (2011) (noting the terms are “synonymous”), And “‘[t]he test for determining whether a
civil proceeding is related to bankruptcy is whether the outcome of that proceeding could
conceivably have any effect on the estate being administered in bankruptcy.” Halper v. Halper, 

 (3d Cir. 1999) (quoting Pacor v. Higgins, 

 (3d Cir. 1984)).

16 The wrinkle here arises because the dispute was between two non-debtors who agreed to
arbitrate. “Disputes that involve both the Bankruptcy Code and the Arbitration Act often present
conflicts of ‘near polar extremes... .’” MBNA Am. Bank, N.A. v. Hill, 

 (2d Cir. 2006)
(citation omitted). “Bankruptcy courts generally do not have discretion to refuse to compel
arbitration of ‘non-core’ bankruptcy matters, or matters that are simply ‘related to’ bankruptcy
cases.” /d. But “[b]ankruptcy courts are more likely to have discretion to refuse to compel arbitration
of core bankruptcy matters, which implicate ‘more pressing bankruptcy concerns.” 

 (citation

omitted}. Unfortunately, the Bankruptcy Court did not expressly state whether the fee dispute
Gov't of the VL. v. John K. Dema, P.C. 

Case No. SX-17-CV-261

MEMORANDUM OPINION

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between the Government and JKDPC was core or non-core. But it did find “enough of an effect on
the estate that the issue does need to be resolved...” (Hr'g Tr. 51:14-15 (Dec. 17, 2015), ECF No.
477, In re: HOVENSA, L.L.C., Case No. 1:15-bk-10003.) And the court then referred the parties’ fee
dispute to arbitration.

717 Anorder compelling arbitration is akin to an injunction because it mandates certain action.
Cf. Salsitz v. Kreiss, 

 (Ill. 2001) (“An order .. . to compel or stay arbitration is
injunctive in nature ....”); accord Andrew v. Am. Imp. Ctr., 

 (D.C. 2015). And courts
that issue injunctive orders retain jurisdiction over those orders. Cf Alderwoods Group, Inc. v. Garcia,

 (11th Cir. 2012) (“[T]he court that enters an injunctive order retains jurisdiction
to enforce its order. In this respect, a bankruptcy court is no different ....”); accord Travelers Indem.
Co. v. Bailey, 

 (2009) (“(T]he Bankruptcy Court plainly had jurisdiction to interpret
and enforce its own prior orders.”). By referring the parties to arbitration, the Bankruptcy Court
retained jurisdiction to enforce that order. See 

 But more importantly, what the parties overlook
is that the January 16, 2016 Order is not final yet, because the HOVENSA bankruptcy proceedings
have not concluded. Consequently, the Government may still be able to appeal the January 16, 2016
Order, either to the District Court of the Virgin Islands or the United States Court of Appeals for the
Third Circuit. Cf 

 (noting same). For this Court to now exercise jurisdiction over a
supplemental award issued in an arbitration that was compelled by another court might wreak
havoc on the on-going bankruptcy proceeding. Accord Alderwoods Group, Inc. 

 (“[I]t
would wreak havoc on the federal courts to leave enforcement of the injunctive order of a
bankruptcy court in one district to the interpretive whims of a bankruptcy court in another
district.”),

718 The Government argues that this Court should not “abandon its jurisdiction, merely because
the Bankruptcy Court may have issued an order in this matter that is independent of the issues
pending in the Superior Court.” (Pl’s Resp. to Ct.’s Feb. 1, 2019 Order at 5-6, filed Feb. 19, 2019.) But
the Government forgets that the Supplemental Award was not issued in an independent proceeding.
It was issued within the original arbitration that—whether by consent of the parties or by operation
of law—the Bankruptcy Court exercised jurisdiction over and retained. The parties did not

challenge that decision nor did they ask the Bankruptcy Court to confirm or vacate the Initial Award.
Gov't of the V.I. v. john K. Dema, P.C. 

Case No. SX-17-CV-261

MEMORANDUM OPINION

Page 9 of 9

Instead, the Government commenced this action to ask the Superior Court to vacate the
Supplemental Award, and JKDPC responded by moving to dismiss and confirm the same award.
However, the power to confirm or vacate that award lies with the Bankruptcy Court in the first
instance. That is not to say that the Superior Court of the Virgin Islands does not have jurisdiction
over an action filed by the Government of the Virgin Islands to confirm or vacate an arbitration
award. Section 76 of title 4 of the Virgin Islands Code provides otherwise. But this is not a typical
case. And even if the Superior Court does have jurisdiction, the Court declines to exercise it here
because the Bankruptcy Court has not refused jurisdiction over the Supplemental Award. Cf Colo.
River Water Conservation Dist. v, United States, 

, 

 (1976) (“It
has been held, for example, that the court first assuming jurisdiction over property may exercise
that jurisdiction to the exclusion of other courts.”). Any other conclusion would erode comity
between Virgin Islands courts, “a judicial interest sufficiently serious to warrant sua sponte
invocation of claims-processing rules and other affirmative defenses.” Simon v. Joseph, 

 (2013). It would also sanction forum shopping if parties referred to arbitration by one court
who retained jurisdiction could bypass that court and ask another court to vacate an arbitration
award.
Ill. CONCLUSION

119 Accordingly, after careful consideration and review, the Court finds, for the reasons stated

above, that this matter must be dismissed for lack of jurisdiction. An appropriate order follows.

Date: January 24, 2020 Qt il

ROBERT AA {MOL fuores
ATTEST: Judge of the Superior Court

ESTRELLA H. GEORGE
lerk of the Court

SUPERIOR COURT OF THE VIRGIN ISLANDS
DIVISION OF ST. CROIX

GOVERNMENT OF THE VIRGIN ISLANDS, ) CASE NO. SX-17-CV-261
)
Plaintiff, )
)
v. )
)
JOHN K. DEMA, P.C., j
)
Defendant. )
—— )
ORDER

AND NOW, for the reasons stated in the accompanying Memorandum Opinion dated January
24, 2020, it is hereby

ORDERED that the Complaint filed by Plaintiff the Government of the Virgin Islands on June
14, 2017 is DISMISSED without prejudice for lack of jurisdiction. It is further

ORDERED all any motions still pending are DISMISSED. It is further

ORDERED that the Clerk’s Office shall SERVE a copy of this Order on Chief Deputy Attorney

General Carol Thomas Jacobs, Attorney Andrew L. Capdeville, and Attorney Kurt F. Gwynne and
then CLOSE this case.

DONE AND SO ORDERED. >
Date: January 24, 2020 Lk Hilbe7
ROBERTA. MOL ee
ATTEST: Judge of the Superior Court

ESTRELLA H. GEORGE
erk of the Court ws